Reference Pages

Friday, June 29, 2012

There have been no new Haynesville Shale drilling permits approved in Texas since June 18 and only ten new permits have been approved this month. The permits have gone to Anadarko (6) EOG Resources (3) and XTO Energy (1), which run all but one Haynesville rigs in Texas. BP is still running one rig, but it is drilling the one and only permit BP has submitted this year, so I assume it will go away within a few weeks.

The Baker Hughes rig count fell by seven this week to 1,959. Oil rigs held at 1,421, gas rigs were down seven to 534 and miscellaneous rigs held at four. By type, horizontal rigs were up six, vertical rigs were down 15 and directional rigs were up two. Among gas rigs, horizontal rigs were down two to 371, directional rigs were down three to 94 and vertical rigs were down two to 69.

For the first six months of the year, gas rigs are down by 277, or 34%. The biggest drop percentage-wise year to date is in vertical gas rigs, which are down 53% (-77). The biggest decrease in terms of total rigs is in horizontal gas rigs, which are down by 167, or 31%. Said another way: over the past six months, the number of all U.S. horizontal rigs is up 1% (or 11 rigs), but the percentage of horizontal rigs targeting gas over that same period has dropped from 46% to 32%.

The change in vertical rigs has been even more severe. The total number of vertical rigs operating in the U.S. has gone down by 78 rigs since the beginning of the year. The number of vertical rigs targeting gas has dropped by 77 rigs over that same time. The number of vertical rigs targeting gas has dropped from 23% of the total to 12% in six months.

Thursday, June 28, 2012

The EIA working gas in storage report showed a 57 Bcf net increase this week, bringing the total gas in storage to 3.063 Tcf. The weekly injection was 32% below last year (+84 Bcf) and 33% below the five year average (+85 Bcf). The current storage level is still 27.1% above last year (2.41 Tcf) and 25.0% above the five year average (2.45 Tcf).

Temperatures across the U.S. last week averaged 74 degrees, which was 0.6 degrees warmer than last year and 2.7 degrees warmer than normal.

In its Investor Day presentation yesterday, Encana put together a very nice big picture presentation about the current market fundamentals and path for natural gas (and liquids) in North America. I find Encana's economic analyses very even-keeled (as opposed to Chesapeake's, which come off overly rosy) and informative. Take a spin through it - highly recommended.

Below are some slides I thought were interesting. The presentation has lots of information about natural gas liquids, which I did not include because they are off-topic for the Haynesville, but it is very interesting (if you're into that kind of thing).

The slide below is very interesting because it depicts the increased use of gas in power generation, which has been an absolute savior for the price of gas (yes, it can get worse). But it also represents the biggest growth demand market for natural gas.

One of my favorite topics is the closure of old coal plants. Here is a good map of coal plant retirements closures. Maybe we should have a retirement party.

The Baker Hughes U.S. rig count dropped by five this week, bringing the number of working rigs to 1,966. Oil rigs were up 16 to 1,421, gas rigs were down 21 to 541 and miscellaneous rigs held at four. By type, horizontal rigs were up three to 1,165, vertical rigs were down eight to 568 and directional rigs held at 233.

Of the gas rigs, horizontal rigs were down 15 to 373, directional rigs were down two to 97 and vertical rigs were down four to 71.

Thursday, June 21, 2012

Today is Encana's Investor Day. In the USA Division presentation, which used to feature lots of red meat about the Haynesville Shale, the talk now is the Tuscaloosa Marine Shale and other "liquidy" plays. Oh, how things have changed: Every day, the spotlight shifts a little farther away from the Haynesville Play. Makes me sad, but it's the harsh reality given natural gas prices. I don't think it will be the case forever, but I think the days of 150+ rigs running simultaneously in the play is long gone.

If you are interested in the TMS, here are a few slides (entire presentation here):

The EIA working gas in storage report showed a 62 Bcf net injection, bringing the total gas in storage to 3.006 Tcf. The weekly injection was 31% below last year (+90 Bcf) and 29% below the five year average (+87 Bcf). The current storage level is 29.2% above last year (2.326 Tcf) and 27.1% above the five year average (2.278 Tcf).

Temperatures last week were 0.4 degrees higher than last year and 1.4 degrees above normal.

One of the big stories this week is the fact that Exxon has ceased its exploration efforts for shale gas in Poland because its first two wells are not commercially successful. Instead, the company will focus on its projects in Russia. While this is a bad thing for Poland, it may not be as bad as it sounds. In Poland, producers were allocated regional concessions, so the quality of Exxon's concession might not reflect negatively on that of Chevron or other producers.But Exxon's decision shows that shale gas development in countries other than the U.S. will be difficult.

One of the biggest differences is that U.S. shale was developed by independents with a taste for risk that were willing to "bet the company" on shale. Independents battled similar companies for leases and necessary resources to develop the shale. The competition and scarcity of resources (physical and financial) led to rapid innovation of technology and technique.

Exxon is great at tackling monumental engineering challenges that involve planning, logistics and capital, but they won't be successful as a wildcatter. They would be better suited to come in after shale has been proven by the little guys and then "blow it out," although the market is still anxiously waiting for this to happen after the XTO acquisition.

Also missing in other countries is the infrastructure present in the U.S. that creates a conducive environment for energy development. Our physical infrastructure (pipelines, drilling and producing equipment, etc.), financial resources and experienced personnel is incomparable. But it is our free market economy that truly sets the U.S. apart. We have a system of private land ownership, which creates financial incentives for the landowner and allows producers to work directly with property owners, avoiding having to get concessions from the government. We also have significant capital resources that allow a small producer with a good idea to get financed. Additionally, we have a liquid (no pun intended) end market for the product that allows for market-based pricing and financial tools to mitigate production risk. Oh yeah, and we have a stable government. Our system is hardly perfect, but it is better than anything else out there.

Poland has none of that. The shale development model will have to be different there and in other nations. It won't be impossible to achieve but it might be a long slog to get there.

Tuesday, June 19, 2012

I just watched the movie "Truthland: Dispatches from the Real Gasland" (watch the whole movie here). It's a mockumentary created by the energy industry group Independent Petroleum Association of America (IPAA) that follows a Pennsylvania woman who was horrified by Josh Fox's movie "Gasland" and set out on a road trip to "find the truth.”

The film has a forced Sarah Palin-like folksiness to and comes off as realistically slick - in an indie hipster documentary kind of way - but it delivers a valid message that helps debunk "Gasland" as well or better than dozens of white papers or point-by-point rebuttals ever will. Make no mistake, it's a 34 minute industry commercial that paints an overly rosy picture of the gas industry, but it is a lot easier to watch than "Gasland" and a whole lot more realistic.

"Truthland" has its own flaming faucet, this time in upstate New York where there has been no gas drilling, along with other pyrotechnics, in this case explosives planted in a sample drill pipe construction to demonstrate its durability. The best interview is with Gary Hanson, director of the Red River Watershed Management Institute and professor of hydrology at LSU-Shreveport. He cites scientific evidence from thousands of oil and gas wells that have been microseismic fracture mapped that clearly shows that hydraulic fracturing is not a threat to groundwater. In a parting shot, the film also portrays the residents of Dimock, PA that are suing producers over water quality as greedy. A cheap shot? Probably.

"Truthland" certainly is not going to end the debate about hydraulic fracturing or natural gas drilling, but it is an attempt to fight the battle on the same field as "Gasland."

Friday, June 15, 2012

The Wall Street Journal had a nice piece today on what Floyd Wilson, founder and former CEO of Petrohawk Energy, is up to with his new company Halcon Resources (which obtained the old Petrohawk "HK" ticker symbol). His success is due in equal measures to entrepreneurial guts, success raising outside money and fortuitous timing.

The Baker Hughes U.S. rig count was down 13 this week to 1,971. Oil rigs were down nine to 1,405, gas rigs were down three to 562 and miscellaneous rigs were down one to four. Among gas rigs, horizontal rigs were down three to 388, directional rigs were down three to 99 and vertical rigs were up three to 73. Among all rigs, horizontal rigs were down 15 to 1,162, vertical rigs were up four to 576 and directional rigs were down two to 233.

Encana lately has been touting the fact that it has drilled six Louisiana Haynesville wells with "ultra-long" laterals averaging 7,300 feet. This week's completion report showed the fruits of this experiment with two wells in Red River Parish, the Edgar Cason 7-18 HC #3-ALT and the O B Madden 7-18 HC #3-ALT, that featured 7,465 and 6,980 foot laterals, respectively. They produced fat IP numbers of 25.9 and 24.1 MMcf/day (although on fairly wide chokes of 27/64 and 26/64, respectively). These IP figures are the biggest recorded in Louisiana since late February 2012.

This is a big deal because Louisiana usually only allows wells to be drilled within a single unit. In Texas, where the units are not as rigidly laid out, some operators have been having success with longer laterals (including a 7,987 foot XTO lateral reported today). The longer laterals allow companies to save money because the higher drilling and completion cost is spread over a better performing well than a traditional well.

Look four more of the ultra-long completions in Red River Parish in the next couple of months and maybe a couple from SWEPI (Shell) as well. For fun, I've set up a Google Map with the suspected wells.

In a positive reaction to today's weekly U.S. natural gas storage report, NYMEX Henry Hub Futures ended the day up 15.7%, or 34 cents, to $2.53 from yesterday. Unfortunately, spot prices were only up a penny to $2.19. News reports indicate the gain results from a "beat" of the analyst estimate of storage (storage was up 67 Bcf compared to analyst estimates of 71 Bcf) and the prospect that production reductions will allow gas storage to finish the injection season below the maximum storage level.

Bottom line - at least for today - is that the market is gaining more faith in natural gas. But I'm not too worked up about this because there is a long way to go until November. All it tells me is that traders are absolutely starved for good news.

Pundits point out that while U.S. consumption of coal was down, it is merely a drop in the proverbial bucket relative to the increase of global coal consumption, as if we shouldn't try to decrease our use of polluting coal just because its use is increasing elsewhere. To me, that is a preposterous argument.

In nations that are developing rapidly - at a sustained aggregate growth that is difficult to fathom in the developed world - governments have little choice than to build coal power plants because they often have domestic coal resources. It's a matter of cost and expediency - it sucks, but I get it. Additionally, Asian and European natural gas prices are significantly higher and supply is constrained, so coal is about the only solution for most growing countries. Cheap, available energy trumps all when it comes to feeding rapid economic growth.

But the suggestion that the U.S. shouldn't do its best to switch from polluting energy sources just because developing countries can't (or won't), is terribly flawed. Many of these same people are quick to claim rights over the concept of "American Exceptionalism" but they don't see a role for the U.S. as a global leader in the smarter consumption of energy? Just because our actions may not make a big difference in aggregate this year or next doesn't mean we shouldn't take the lead. After all, it is what we do naturally. We develop methods and technology that later are transmitted and reproduced globally. Look at shale gas: U.S. companies pioneered drilling techniques and technology that are going to be rolled out worldwide over the next decade. Pardon the cliche, but it's going to be a game changer.

Why shouldn't the U.S. be a leader in the switch away from coal, even if it takes a decade or two to make a difference globally? It is better for the health and welfare of our citizens and it can create economic opportunities for us worldwide.

The EIA working gas in storage report showed a 67 Bcf net increase this week, bringing the total gas in storage to 2.944 Tcf. The weekly injection was 7% below last year (+72 Bcf) and 24% below the five year average (+88 Bcf). The current storage level is still 31.7% above last year (2.236 Tcf) and 29.2% above the five year average (2.278 Tcf).

While it is encouraging to see weekly injections remain below average (remember the beginning of April 2012 when the storage level was 60% higher than the five year average?), the current level is still at record levels and is 666 Bcf higher than the five year average, which is already abnormally high based on heightened storage levels in recent years. Below is the EIA's net injection/withdrawal data for the past thee months

The good news is that we will be able to hit the "reset" button in November at the end of the storage season, even if storage tops out before then. A cold winter will further reduce storage levels and we likely will see producers inch back into gas drilling to play a game of brinkmanship for another year. But it will be a tense five months before we get there.

Sunday, June 10, 2012

Over the rest of the decade, a large number of coal-fired electric plants will be closed for good, replaced by more efficient, less polluting natural gas facilities. While this is a net environmental gain, utilities will be faced with massive environmental liabilities from the former coal plants, including everything from mercury and PCBs to enormous ash lagoons and dams. Many of these plants are 50+ years old and were built at a time when we had fewer environmental safeguards. I'll bet there are some serious nasties out there.

While it might be tempting to blame gas for this transition, these cleanup projects were going to have to happen eventually. It's best for communities if the utilities to address these problems sooner rather than later to eliminate these serious environmental dangers from the landscape.

While the first significant cargoes from LNG exporters along the Gulf Coast are still several years away, the prospect of Henry Hub-priced gas is already causing ripples throughout the world. While cheap U.S. gas might not completely upset the LNG market, it will offer a lower priced alternative to countries paying prices referenced to oil or higher priced LNG sources and may shift some bargaining power from the sellers towards the buyers.

This is the second time that shale gas has caused a disruption in the LNG market. Remember several years ago when the natural gas supply in the U.S. suddenly surged and the LNG cargoes targeted for our shores had to find new homes? While the first pass only caused a scare, the wake from the next pass likely will cause more disruption, one that LNG buyers will certainly welcome.

Friday, June 8, 2012

The Baker Hughes U.S. rig count showed a four rig net increase to 1,984. But that small net increase hides large changes below the surface. For the week, oil rigs were up 28 to 1,414, gas rigs were down 23 to 565 and miscellaneous rigs were down one to five. By type, horizontal rigs were down six to 1,177, vertical rigs were down eight to 572 and directional rigs were up 18 to 235.

Among the gas rigs, horizontal rigs were down 18 to 391, direction rigs were up four to 102 and vertical rigs were down nine to 72.

In what is not exactly a surprise in this chaotic week foe Chesapeake Energy, the company announced that it is selling its midstream (pipeline and gathering) assets in three deals for $4 billion. The move puts money in the bank when desperately needed and reduces some future capital expenditures.
With this and other transactions, the company is dismantling its vertically integrated business model that made it unique among other independent producers.

Thursday, June 7, 2012

The EIA working gas in storage report showed a 62 Bcf net increase this week, bringing the total gas in storage to 2.877 Tcf. The weekly injection was 23% below last year (+81 Bcf) and 37% below the five year average. The current storage level is 32.9% above last year (2.164 Tcf) and 31.4% above the five year average.

Temperatures last week averaged 70.7 degrees, 1.4 degrees warmer than last year and 4.7 degrees warmer than normal.

Friday, June 1, 2012

The Baker Hughes rig count dropped by three this week to 1,980. Oil rigs were up three to 1,386, gas rigs were down six to 588 and miscellaneous rigs held at six. By type, horizontal rigs were down eight to 1,183, vertical rigs were up ten to 580 and directional rigs were down five to 217.

Among gas rigs, horizontal rigs were down two to 409, directional rigs were down five to 98 and vertical rigs were up one to 81. For the first five months of 2012, gas rigs are down 233, or 27.5%. Of that total decline, horizontal rigs represent 129 (-24%), while directional rigs were down 29 (-22.8%) and vertical rigs were down by 65 (-44.5%).

The Wall Street Journal headline caught my eye, "U.S. Gas Exports Put on Back Burner." WTF, I thought. Exporting natural gas seems like a no brainer to me. It creates a new export industry and sustains jobs and investment in the U.S. But reading the article got me thinking of the unintended complications created by several years of cheap natural gas.

Consumers are suddenly addicted to lower utility costs. Everyone is hearing stories of the rebirth of the manufacturing and chemical industries, and it's due in large part to our reliable supply of low cost natural gas. Advocates of natural gas as a transportation fuel use the low price of gas versus oil-based products as a key selling feature.

Cheap gas is nice, but the current price makes drilling for gas (as opposed to producing gas associated with oil drilling) uneconomic. It is an unsustainable situation in the long-term.

So many times in the past five years natural gas has become a victim of its own success. It looks to be happening again.

It's Been a Gas...

As of 12/31/15, I have stopped updating the Haynesville Play site on a regular basis. I will occasionally post items I find interesting, but I will no longer maintain the data or keep the news current. The site will remain up as an historical archive and a home for occasional musings.

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About Me

My goal is to compile a real-time historical record of the development of the Haynesville Shale.
There is so much going on at any one time that impacts the Haynesville Shale. I weed through the information and summarize the important points.
I look at the micro-trends, such as drilling results and drilling rig activities, focusing on the who, what and where. I also concentrate on the macro-trends that will impact the future of the Haynesville Shale, including the supply/demand issues, the market for natural gas and trends that impact the gas industry as a whole.